Bajaj Healthcare Limited (BAJAJHCARE) Q2 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to Bajaj Healthcare Ltd. Q2NH1 FY27 earnings conference call. As a reminder, all participants' line will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand over the conference to Ms. Prachi Ambrev from MUFG Investor Relations. Thank you and over to you, ma'am.

Good evening, everyone. On behalf of Bajaj Healthcare Limited, I extend a warm welcome to all the participants on the Q2 and H1 FY27 earnings conference call. Today, on the call, we have Mr. Anil Jain, Managing Director, and Mr. Rohan Parekh, Chief Financial Officer, to provide insights on the company's operational and financial performance. Before we begin the call, I would like to give a short disclaimer. This call may contain some of the forward-looking statements, which are completely based on our expectations, beliefs, and opinions as of today. These statements are not a guarantee of our future performance and involve unfortunate risks and uncertainty. With this, I would like to hand over the call to Anil, sir, for his opening remarks. Over to you, sir. Thank you.

Very good evening to everyone. On behalf of Bajaj Healthcare team, it is my privilege to welcome you to our earning calls for the second quarter and the first half of 2027. With us, we have today our Chief Financial Officer, Mr. Rohan Parikh. Coming to the quarter, Q2-27 was a strong quarter. Revenue from operations grew 18.9% Y on Y to Rs. 175.9 crores and profit after tax grew by 26.9%. For the first half, revenue grew about 15% and pet about 21% in the line with the guidance we shared with you last quarter. Beyond the numbers, the quarter shows good business momentum and progress across our strategic priorities. Our formulation business rebounded strongly, As we have expected at the end of API export grew 28.5% year-on-year. Together, API export and formulation crossed Rs. 100 crores in quarterly revenue and now makes up to close to 60% of our revenue. Domestic API revenue moderated during this quarter but grew 10.1% year-in-year for the first half. Recently, we have received an approval from Honorable NCLT for the acquisition of GenRx Pharmaceutical Private Limited. It strengthens our formulation capabilities and broadens our portfolio as we built our formulation franchises. The quarter also marked an important milestone in our specialty products journey. Bajal Healthcare became the first company in India to receive DCGI approval to manufacture and market Sinobimed API tablets in six different stands. We launched the tablets commercially in September through our eight marketing partners. Sinobimed is a next generation anti-scissure medicine for the adult with parsley onset scissure. It is a clear example for the differentiated specialty portfolio we are building. We also continue to widen our regulatory reach in the key international markets. In Brazil, we are progressing with Envisa GMP certification process and have identified 17 products for CBPF submission. In Europe, we have filed 12 CEP have been already filed till date, of which 8 has been approved and 4 are under review. In South Korea, we secured KDMF approval for two more products during this quarter, taking the total registration with the KDF to 17. In Egypt, three products are registered under the whitelist process with 10 more planned in later phase. Alongside with this, we continue to invest in our manufacturing capabilities. The company The company is constructing a state-of-art commercial peptide manufacturing plant scheduled to complete by 31st March, 2027, with an installed capacity of 250 kgs per annum. This facility will be supported with solid phase synthesis and also with fermentation technology, focusing manufacturing of pharmaceutical, nitrocytical, and cosmetic peptides. Oncology API plan will be commencing from second quarter of financial year 2028. The company has expanded R&D facility supported by team of over 80 experienced professionals. The R&D center focuses on new product development, oncology, peptides, and API research. The company has increased its R&D spending to approximately 2.5 to 3 percent. The company is establishing a dedicated formulation plan at Narsic with a facility for solid oral dosage from tablets, sachets, and capsules, nasal, oral oncology, nutraceutical, and ointment. The plan is expected to operational by first quarter of FY28. The company has established a business vertical focus on the formulation export with the objective of registering the marketing, branded, generic combination across the rest of the world. DoShares has been submitted in several markets, including Africa, Myanmar, Philippines, Vietnam, and Latin America. The company has established a strong business foundation in industry's presence and operational capabilities. Building up this legacy, the company is now strengthening its leadership structure by appointing a key management person who are experienced professionals with proven expertise in their respective fields. Last year, we have appointed Mr. Srikumar Nair, who has joined as the Chief Operating Officer with more than 40 years of experience in the pharma operation. Further, we have appointed Mr. A. G. Prasad, who is in Sales and Marketing, having 35 years of experience. Also, we have appointed Mr. E. J. Babu, who lead our global API business, having 33 years of experience in API industries. Apart from this, we have appointed Mr. Baiju, who is taking care of our R&D, and he is a R&D head, Mr. Sujay Benerji for the ROW branded generic formulation, and Mr. Rahul Sanap as our oncology sales and business head for our oncology division. Important milestone in our company journey towards building up more professional management, instantly driven, and further ready organization. Looking ahead, our aim is to reach a revenue of Rs. 900 to 1,000 crore by FY29 with a EBITDA margin of 80 to 80. With that, I will hand over to Mr. Rohan Parikh, who will take you to the financial performance first half in more detail.

For the first half, API revenue grew by 11.7% compared to nearly 79% grew by 38.4% YOY to 65 crores. Gross profit grew by 12.4% YOY to 85.4 crores with a gross margin of 48.3% which is in line with quarter 1 of this year. EBITDA was 32.1 from 28.6 crores in quarter to 6% from 29.6 crores in quarter 1 of this year. EBITDA margin improved sequentially from 17.8 to 18.2. For the half-year, gross profit grew by 14.2% to 165.8 with a gross margin of 48.3. EBITDA margin grew by 14.2% to 61.7 crores with EBITDA margin at about 18.1%. Profit after tax grew by 26.9% YOY to 14.1 crores and part margin improved to 8% from 7.5% in quarter two of this year. Part grew by 21.1% to 27.8 crores and part margin improved from 8.1% from 7.7%.

Thank you very much. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Bhargav Buddha Dev from Ambit Asset Management. Please go ahead.

Yeah, good evening, team, and congratulations for a very good quarter. So, my first question is that during the quarter, you've got the NCGT approval for GenRx, which is a formulation facility. So, is my understanding correct that now that you have got this approval, possibly the formulation which is being produced at Manjoo, sir, may be shifted to GenRx? And Manju sir, may sort of fuel formulation exports going forward. That is my first question. My second question is that as on March 26, we've seen almost 110 DMF filings having filed, and this is 100% growth on a YOI basis. So when can we see revenues coming in from this DMF filings that we have done? And my last question is that we've seen some increase in terms of inventory on the working capital front. So, is it more strategic in nature given the raw material inflation, and is it fair to say that maybe by year end the working capital can also normalize? These are my three questions. Thank you.

Thank you, Bhargava Ji. Regarding the NAFIC facility, it is a strategic decision because our formulation division, The sales is increasing and we need the capacity for next two to three years. So, the new molecules which we are developing will be manufactured at the Boroda facility because that is an approved facility. And the new entity which we got from Entility will be doing all the other formulations which are going to the different markets. Regarding the second question of 110 DMF, as you know, the DMF filing we have done now, we are awaiting the approvals from the regulatory bodies of the respective countries. As and when we will be getting, it takes approximately two to three years to get an approval and to start the business. So, it's in a sequence form. As we know, we have already got eight CP approvals. So, that product already started a marketing and this will take another one to two years to get the business. Third, as regards to the working capital, as you know, there is a dispute in the Gulf area. So, our facilities should not be stopped in between. So, we have increased our inventory.

Great, sir. Thank you very much and all the very best.

Thank you. The next question is from the line of Shantanu Basu from Smiths Limited. Please go ahead.

Can you hear me?

Yes, sir.

Okay, okay. So, congratulations on a good set of numbers. My question is firstly with regard to Generex. So, what is the revenue potential from this entity? If you can mention that from the current year FY27 and FY28 perspective, and also with regard to your oncology API plan, which is going to fructify in FY28, Q2 of FY28. So, what would be the revenue potential for FY28 and full-year FY29? Those are my questions. Thank you.

So, Genrex, as we are having different divisions like ointment, tablet, so in the next two to three years, once this facility starts, we should grow around 200 to 250 crores from that unit. And as regards to the Oncology API plant, first year will be like approval and everything will start picking up. So, in next two to three years, once this plant is in operation, we should reach a revenue of around 200 crores.

Okay, I see. Thank you.

Thank you. Anyone who wishes to ask a question may press star and 1. The next question is from the line of Arnab Sakuja from Ambit Capital. Please go ahead.

Hi, thank you for taking my questions. So, my first question is, can you give a bit of an indication to how the domestic API prices have moved in this quarter too, and any indication as to how you expect them to move for the remaining of the financial year?

The API all depends upon the market condition, the demand and supply, and overall what is happening in the world. As you know, always API is always on pressure. Price pressure is there, even the demand pressure is there. So, over the period of time, there will not be much improvement in the API pricing. It will be a straight line.

Got it. And what is the total expected CapEx for FY27?

CapEx for FY27 will be around 65 to 80 crores.

And in the last call, you had given a guidance of around 10 to 15% growth in revenue and profit with an 18 to 20% margin. So are we broadly on track to achieve this? Okay, great.

So, if you see our quarter, so the growth is more than 15%, it is in the line of almost 20%.

Right. Great, congrats again on a strong set of numbers, and thank you for answering my questions.

Thank you. The next question is from the line of Sajjan Kapoor from Antifragile Thinking. Please go ahead.

Yeah, thank you for the opportunity. A couple of questions from my side. First is on the formulations where the revenue was up about 80% YOY. And we know that Cinnabomate was launched in September, I think through eight partners, if I'm not mistaken. Question is, how was the secondary sales? I mean, have the secondary sales responded in line with our expectations or below or above our expectations? And should we expect this traction to continue through the second half of this group? Thank you.

So, we do a primary sale, we are B2B, 2D8, our partners. So, what is their sale, still we don't have, because we have launched this product in September itself. But, the one good thing is that we have got repeated orders from them. So, this clearly shows that their secondary sales are moving very well.

No, that's helpful. Thank you. And on that peptides announcement, which you just made, and I think it's well covered in the recent annual report as well. And by the way, the annual report reads a lot better than the previous annual report. So, full credit to the team for writing the way it was written, including the cash flows and, you know, those kind of return ratios, etc., which normally, you know, such a small company, it's easy to skip in the annual report, but very well written. And the question is on the peptides. See, peptides have, and many Indian companies are today talking about CDMO and peptides, almost every pharma company. Now, in our case, I think the peptides have applications across nutraceuticals, cosmetics, and pharma, of course. In that context, where do you see the strongest commercial opportunity or the immediate commercial opportunity? And what specific milestones should we, as investors, watch for the next 12 to 18 months to, you know, sort of know that the new facility is being built against real demand? Thank you.

So, as regards to peptide, as I mentioned in my first, that we are not only into a pharma, but we'll be concentrating more on cosmetic, which is, you can see, a lot of cosmetics are coming with the peptide and a nutraceuticals. So, we are into API of peptides and if you see there will be more than 50 to 100 companies will be launching the product. But the main key remains is the API. How many manufacturers are there in India who will be manufacturing the API with this capacity of 250 kgs. So, we believe that we have a very good position with the peptides and we, for your information, we have already developed six APIs which is It's already been developed at the pilot scale, which we have built. We have built the R&D for peptide and a pilot plant. So at the pilot level, we are absolutely ready with the six peptides. Once we start this, our commercial production, which is, as I mentioned, second quarter, so it will take another six to ten months for the approvals with the customers. So, the real turnover or turnaround of this peptide facility will be 28-29. And where we expect the first year to be around 7,200 crores. And if you're cumulative for next year, it will be around 300 crores.

That's helpful, R&D. And finally, on the R&D side, with the new R&D center up and running, we have integrated a lot many people. I mean, how are we placed in terms of R&D for not just this year, for maybe the next two years? Are we satisfied with the number of scientists that we have on board today? How do you look at the OPEX or operational expenses on the R&D side going forward?

So, as I mentioned, we already have more than 80 people working in this new R&D setup, Which we started in August, where we can accumulate almost 120 more, total 120 chemists can fit in. So in the first phase, we have appointed almost 80, 80 plus. And hopefully for next three years, this R&D will be fully, it will be full, it will be running for next three to four years. Because in that, we have the API R&D, we have a peptide R&D, we have a separate oncology R&D, and a biotropology R&D. So, there are four sections, and it's a complete building of R&D.

Okay. So, ultimately, we will have 120 odd people. We have already got 80 of those 120. Now, that's all. Thank you. Thank you so much. Thank you. That's all. Thank you.

Thank you. The next question is from the line of Atharva Deshmu from MM Capital. Please go ahead.

Thank you for the opportunity. My question was on your oncology API factory that's due in FY28. Are you expecting any, your portfolio can be backward integrated, and what margin improvement do you expect from this backward integration of your on-care existing portfolio?

So, OncoCare is a division where we do a marketing and sales of our own branded oncology product. So, what will happen, now we are depending on the third party for these products. Once we have our own API and a formulation, which is a backward and forward integrated plan, then our margin will definitely be increasing and even our sales will increase because we will not only have our own branded, But we will be partners with other big players in India, like an example of Sinovamed, where we are partnered with eight companies. So that is the model we are looking forward to.

Okay, so can you just give a number or percentage on how much of your portfolio can be backward integrated and any number on margin, maybe?

So, in the next 2-3 years, hopefully 60-70% of our product will be backward integrated, and revenue, there will be increase of almost from current revenue. The increase will be around 10-15% in margin.

Thank you, sir.

Thank you. The next question is from the line of Rishabh Tipati from Multidimensional Thinking. Please go ahead.

Hi, thanks for taking my question. Am I audible?

Yes, sir, you are audible.

Okay. So, again, thanks for the annual report this time, sir. And it comes out like companies trying to structurally change itself. And we talked a lot about going ahead, it should be measured on execution. So, may you help us with three bottlenecks, which we can see right now, which can handle the execution. And how we are planning to deal with those. Thank you.

It will be the facilities, because we are developing every year, we have put a R&D, new products will be coming. So that has been already taken care. Right now we are building a plant, next year we already plan for another plant. Moreover, we are changing our product plan. We are changing from a high volume to a low volume. So, that will cover our manufacturing capacities. Further, there was a regulatory, we are moving more towards the regulatory, that was a bottleneck. So, we have hired a number of good people, so they can lead this regulatory. And the third one was the bottleneck was the R&D. And that also we have taken care of for next two to three years.

Thank you. My next question would be, may you, sir, can confirm if our operating cash flow for this quarter was 15 calls?

Yes.

Sorry, this half. So, sir, what is the year-end operating cash flow we are looking forward to? And, like, again, in last call, we discussed that going ahead, we might be, like, improving about EBITDA to cash flow. But looking at this first half, again, it looks a bit down. So any comment on that?

Yeah, so you can expect that the operating cash flows to be more than 30 crores. We expect it to improve because of the West Asia. Just to give a feedback, we, on an overall basis, the receivable turnover is improved.

Thank you. Thank you, sir. All the best.

Thank you. The next question is from the line of Nimish Verma from Vexora Securities. Please go ahead.

Sir, my first question would be, how has the competitive intensity in the API business evolved over the last few quarters? Are there certain product categories where the pricing has started stabilizing?

It was stabilized, but we cannot predict what will happen tomorrow because it's a volatile market right away. Gulf is having dispute, then the container freight, everything is increasing. Overall, if you see, the interest rate has gone up. So, it is unpredictable right now. But we are monitoring the situation. And that's why, if you see, we are keeping an inventory. That's why our inventory is high.

Okay, got it, sir. Sir, the second question would be, given the current revenue mix, how different are the margin profiles of domestic APIs, exports, and formulations, which segment offers the greatest opportunity for improving overall profitability?

So, if you look at a different verticals or different API formulation and the exports, definitely the margins in exports and the formulation are better than the API.

Go ahead, sir. Thank you very much, from my side.

The next question is from the line of Srijal Kapoor from Anti-Fragile Thinking. Please go ahead.

Yeah, thank you for the follow. Just one question for you, Rohan. I mean, looking at the YOY gross margin because of West Asia crisis, I mean, it's down roughly, I think, 250 basis points or maybe 225 basis points, give or take YOY. And despite that, the EBITDA margins are still very sticky around 18%. I mean, is it purely a volume-led, so higher sales spread across the fixed cost? Is that the reason why EBITDA did not fall 2% point in line with the gross margins, or was there some operating leverage in addition to that? I mean, what's the role of operating leverage? That's precisely the question because lower gross margins should have reflected in the lower EBITDA margin as well.

Yeah, so when there's a dip in the domestic API business, our export and formation business are able to cope up and cover up. And our margins are also good in those businesses.

So, Ron, assuming that the West Asia crisis stays as is, right, there is absolutely no change in the second half, how confident are we in terms of maintaining, if not improving, this EBITDA margin for the remaining fiscal?

We are pretty confident of maintaining this gross margin and EBITDA margins. We do have a vast product mix where we can, you know, in the coming quarters, so that we are able to maintain.

Okay, okay. That's helpful. Okay, thank you. Thank you.

The next question is from the line of Rohit from iThought PMS. Please go ahead.

Yeah, good evening. I hope I'm audible. Yes, you. So sir, just wanted to understand this in API as a whole, like right now, how many products do we have? And then specifically on the exports, what contribution would magnesium will have to our API exports? Roughly, just, I don't know what exact numbers, but just wanted a broad share, and what is driving this growth in the export segment, if you can share that as well.

The APIs across the year, depending upon the requirement from the customers, in that if you see the magnesium L3 unit, which we supply to the patent holder in US,

And so what is driving the growth in DPI exports?

As I mentioned that we have already filed 110 DMF in different countries. So as and when we are getting approval, so that product we are able to export and we are getting new businesses from that. So whatever investments we have done in last one, one and a half years or two years, the filing of DMF, that is now supporting and it will support in future also.

And let's say this year or maybe next year, in terms of this mix between domestic export and formulations, last year was 1910 or 8911 more towards API. And of course, this water itself, we are at 24% in terms of formulation. So, where do you see this, let's say, FY27 or FY28 in terms of mix between API and combination? Of course, I'm aware that we are also tamping up our oncology on particular API. So, just model to your sense, let's say, in FY28, what is one, let's say, FY27 and FY28, what kind of mix it would be? And let's say once these plans start to come in and you have goal approvals, et cetera, let's say three, four years out, let's say the thousand crore number that you are targeting, what is the mix that you are looking at between APIs and combinations?

So, as you know, we manufacture API and we manufacture formulations. So, whatever formulations we sell with our backward integrate. We are not dependent on any other API, which is the source from outside. So, that is a key strength. So, we control the API, we control the formulation. So, once the formulation business grows, similarly, the API business will also grow. So, even today, if we are in the range of 20 to 24 percent of formulation and the rest is of API, so, over the next three to four years, if you see, formulation business will be anywhere between 45 to 50 percent and same thing with 50 to 55 percent of the The API and 45 to 50 is our formulation.

Understood. And just to be clear, this formulation will be, again, mostly B2B, where we will provide two.

It's called a CDMO business. It's a CDMO where we do our development. We give it to the, like we gave SinoBermit to the six, eight of our partners. So it will be from the CDMO. It will be from the formulation exports.

Right now, we don't have any exports, right, in terms of formulations today?

No, we have started filing it. So, in next...

Got it. And, sir, this from, I think, the initial question to a participant earlier, you mentioned the CapEx this year would be about 70 to 80 crores?

65 to 80 crores is what I mentioned.

65 to 80 crores. And for your, all these growth plans that you have to reach 1,000 crores, what kind of incremental effects after FI 27 do you anticipate?

So, as we mentioned in our previous, last quarter, that every year we'll be infusing around 50 to 60 crores to get that growth of 1,000 crores.

So, every year, you will do around 60 to 60 crores of capex, which this year will be 65 to 80 crores. Is that how funds would be? That's it from my side. Thank you.

Thank you. The next question is from the line of Ayush from Vardaman Family Office. Please go ahead.

Hello. Am I audible?

Yes, you are.

Sir, Congress has a good set of numbers. So, my question is on Oncology Plant, which is being commissioned in FY28. Okay. So, this plant is not for our own brand, but also for the CMO sector, CDMO sector. So, is this understanding, right?

Yes, it is for the CDMO and for our own brand.

Okay. Thank you.

Thank you. Next, we have a follow-up question from the line of Bhargav Budhadev from Ambit Asset Management. Please go ahead.

Yeah, thank you, sir, for the opportunity once again. Sir, I just wanted to know what is the revenue that we would have booked from Zenobamite in September? And given that you've got repeat orders, is it fair to say that the monthly run rate of this product may sort of keep on increasing so far in this financial year?

As you must be aware that once the company launched first time, so the requirement is higher than the regular requirements. So this is a new molecule in India, totally new. This molecule was not there. So Bajaj was the company who has brought this molecule to India. So depending upon the sales from our partner, we can expect more orders. But this is a class drug where once the patient takes the tablet, he has to continue with that because it's an antitheserve.

But, sir, any quantification on the revenue we can give? How much can it do maybe in FY27 or in FY28 or difficult to quantify?

It will be very difficult for the next two years, but it is going, I can say.

Secondly, sir, you mentioned that you hired a lot of people on the R&D side as well as on the CXO side. You have been strengthening the organization. So, I just wanted to understand how do we retain them, given that we are such a small company and we have hired so many senior people. So, what are we doing for them to stay back with us? Obviously, we would have promised them the growth path in terms of our profitability and revenue. But ultimately, given that these are senior people, they also want long-term incentives. So, if you can spend some time on that, that would be helpful, and that would be my last question.

So, to retain, the company has made some structures. Different person has different requirements, right? So, with some, we have done with incentivizing them. Somebody, we have given ESOPs. So, this way, we try to retain them for a longer period. Correct, sir. All these incentives are on com basis.

Sorry, sir. I didn't get that.

These incentives are on performance basis.

Performance basis. Okay. Great, sir. Thank you very much and all the best.

Thank you. The next question is from the line of Pahal Sharma from BD Capital. Please go ahead.

Hi. Thanks for the opportunity and congratulations on the good start-up numbers. I have two questions with me. So, the first question is that the company has made progress on regulatory approvals across Brazil, South Korea, and Egypt. So, like, are these developments now beginning to translate into commercial inquiries or orders? And also, which of these markets do you see contributing meaningfully in the near term?

In countries, we have filed in Korea, we have filed in Europe, now we'll be filing in Brazil, Mexico. So, already we have filed 17 products in Korea and 10 DMF in Europe. So, hopefully to get the business from where we have filed, first we will get a business over there. But overall, the product which we have chosen has a very good market overall. So, there will be like demand, which country has more demand will get more business from that. And Korea already has started some businesses. So, hopefully, we'll see a good result in the next coming years.

Understood, sir. And my next question is, looking at the overall performance in H1 F527, what gives management confidence about sustaining this growth in this account? And also, are there any specific products, business segments, or external factors that investors should particularly track going forward?

So, as we mentioned that we have built a strong R&D team, and we are going to a new segment, peptides, and new molecules. So, that will be giving us a sustainability in coming years.

Okay. Okay.

Thank you. The next question is from the line of Javed Ansari from MM Capital. Please go ahead. Hello.

My first question is, as related to peptide, semaglutide, as many other Indian players are entering into this market, so how is management tackling this situation?

But they are all into formulation of injectables, because the first thing is that the patent which is off is for the injectable. We are into more into API. The plant which we have built is for the API. If you see, there are very, very less people into API. So whoever has launched the product will need an API.

Okay. Understood. And my next question is, with the oncology API facility expected to commercialize, So, can I know what will be the revenue mix from a specialized API or generic API versus generic API?

It's very difficult because it's a mix again. It's totally a mix.

Okay. Okay, sir. Thank you.

Thank you. Ladies and gentlemen, we will take it as the last question for today. I would now like to hand the conference over to the management for the closing comments. Over to you, sir.

Thank you, all of our investors.

Thank you. On behalf of MUFG Investor Relations, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.